TY - JOUR
AU - Pauly,Mark V.
AU - Herring,Bradley
AU - Song,David
TI - Health Insurance on the Internet and the Economics of Search
JF - National Bureau of Economic Research Working Paper Series
VL - No. 9299
PY - 2002
Y2 - October 2002
DO - 10.3386/w9299
UR - http://www.nber.org/papers/w9299
L1 - http://www.nber.org/papers/w9299.pdf
N1 - Author contact info:
Mark Pauly
Health Care Management Department
The Wharton School
University of Pennsylvania
208 Colonial Penn Center
3641 Locust Walk
Philadelphia, PA 19104-6218
E-Mail: pauly@wharton.upenn.edu
Bradley Herring
Department of Health Policy & Management
Bloomberg School of Public Health
Johns Hopkins University
624 North Broadway, HH #408
Baltimore, MD 21215
Tel: 410-614-5967
Fax: 410-955-6959
E-Mail: bherring@jhsph.edu
AB - This paper explores the level and dispersion of premiums paid for individual health insurance by comparing asking price' data posted on an electronic insurance exchange with survey data on premiums actually paid in the period just before the advent of electronic exchanges. The primary theoretical question is whether the pattern of differences between asking prices and transactions prices can be explained using a simple search theory. We hypothesize, following suggestions of Stigler and Rothschild, that higher risks who expect to pay higher premiums for a given policy will engage in more intensive search than lower risks, given the same distribution of asking prices. As a result, for a given distribution of asking prices, the dispersion of premiums actually paid (transactions prices) will be smaller for higher risks. Therefore, the introduction of an electronic exchange should have a larger potential influence on the dispersion and level of premiums paid for lower risks than for higher risks. We find evidence consistent with each of these hypotheses.
ER -